The Indonesian Halal Law: A Headache for Pharma

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The Halal Product Assurance Law, enacted in 2014 and due to be implemented across Indonesia in 2019, will mandate that all food and drink that that enters, is distributed, and is traded in Indonesia must be halal certified. However, the law will also extend to cover all medicines, chemicals and biological products; creating a serious headache for the Indonesian pharmaceutical industry.

“Any form of mandatory implementation of halal certification, as it is projected now, will be close to impossible as 95 percent of our raw pharmaceutical ingredients are imported”

Darodjatun Sanusi, GP Farmasi

Some industry leaders have argued that the ‘Halal Law’ will simply be unworkable in practice. Darodjatun Sanusi, executive director at GP Farmasi (National Association of Local Companies in Indonesia), postulates that “any form of mandatory implementation of halal certification, as it is projected now, will be close to impossible as 95 percent of our raw pharmaceutical ingredients are imported; coming from different sources and making it pretty difficult for the government to audit the producers on the halal status of their products.”

However, the Indonesian government seems to be steadfast in its determination to deploy the Law and has been encouraging the pharmaceutical industry to comply with new regulations as soon as possible. Minister of Industry Airlangga Hartarto affirms that “pharmaceutical companies have to quickly adapt their offering and procedures to local regulatory specifications such as the Halal Law, which might soon be applicable for pharmaceutical products.”

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This legislation stands as a direct threat to pharmaceutical MNCs with operations in Indonesia as well as to Indonesian patients’ ability to access innovative and potentially life-saving treatments. In the words of Parulian Simanjuntak, executive director of IPMG (International Pharmaceutical Manufacturers Group), “[the Halal Law] could pose a real menace to the life sciences sector as pharmaceutical companies could stop producing drugs in Indonesia or even refrain from bringing them to market for fear of sanction for non-compliance.” These potential sanctions are strict, with failure to maintain the halal status of a product that has obtained a Halal Certificate being punishable by imprisonment of up to five years or a fine of up to Rp two billion (USD 150,000).

Local pharmaceutical outfits also stand to be negatively impacted by this controversial law; with state-owned vaccine producer Bio Farma calculating that the nation’s vaccine industry faces up to Rp 1.5 trillion (USD 156 million) in losses should the bill be passed into law in its current form. Additionally, as A. Lin Neumann, managing director of the American Chamber of Commerce in Indonesia, highlights, “The Halal Law would mean that [pharmaceutical] companies are required to separate their manufacturing and supply chain from other products.”

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In terms of the Law’s impact on investment into Indonesia, some believe that the damage has already been done. The impression that Indonesia remains a high-risk country to do business where the regulation can change practically overnight has been compounded by the Halal Law, especially as the legislation’s implementation regulation for the pharmaceutical industry has not yet been issued; creating a lot of question marks and uncertainty.

However, the Indonesian state remains eager to attract investment into Indonesia. Minister Hartarto avows that “We are fully aware that in order to create a strong domestic industry we need to attract both foreign and national direct investments to Indonesia. Thus, we are actively working on creating the regulatory environment that will certainly bring those investments.”

How regulatory certainty for pharmaceutical companies can be squared with the Halal Law remains unclear, but state-industry dialogue is ongoing to find a solution. IPMG’s Simanjuntak posits that “there are two solutions that should be discussed: amend the law in order to take out pharmaceutical drugs from the Halal context, or make voluntary the application of such law within the manufacturing process of pharmaceuticals.”

There is also the potential that the Halal Law will create opportunities, especially for companies with manufacturing in Indonesia. Some industry players are starting to consider the potential of positioning Indonesia, the country with the world’s largest Muslim population, as a Halal manufacturing hub to serve not only national demand but also other markets with predominantly Muslim populations such as the Middle East. Dede Yusuf, chairman of Commission IX of the House of Representatives responsible for the Health and Manpower sectors, states that “we would be delighted if companies could make Halal medicines and they would even be able to sell them to other Muslim countries.”

 

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